Even the business lobby recognises that austerity isn’t working

Yesterday brought a new wave of recognition about the poor state of the UK’s economic prospects, and the risks that austerity poses for generating the demand we need to secure the recovery. With independent forecasts now anticipating growth of only 1.3% over the rest of the year (and the OECD predicting even less), the global recovery slowing, household and business confidence falling across the UK as well as the rest of the world and unemployment starting to rise even stagnation is starting to look as if it would be a positive outcome.

But while many in the business lobby are starting to recognise the need for a stimulus, they are reticent to acknowledge that this could require any change in the Government’s deficit reduction strategy. For example, in advance of the MPC’s monthly meeting the British Chambers of Commerce stated that:

Given signs of weakness in the economy, there are arguments for raising the QE programme immediately from £200bn to £250bn…the MPC cannot ignore the worsening international situation and the need to underpin business confidence.”

By the afternoon, the BCC were also calling for Government to introduce “ways of stimulating enterprise and job creation, for example adjusting business taxes, or introducing fiscal measures that encourage investment”.

Similarly, the IoD have been out in force underlining their concerns about the state of the UK’s economy, stating that:

“The downside economic risks are sufficiently great to warrant an extension in quantitative easing now, in order to avoid the risk of a double-dip recession. We already have an L-shaped economic recovery and the hit to business and consumer confidence over the summer risks a slip back into recession, which could have dire fiscal consequences. “

And the CBI are calling on the Government to “put infrastructure investment firmly at the top of its agenda”.

Business bodies are keen to see a boost in demand, have concrete proposals for how Government, as well as the Bank of England, could achieve it and are increasingly warning about the risk of a further downturn. So it’s unfortunate that none are prepared to admit that the Coalition’s fiscal policy will have any impact upon their ambitions – because the reality is that the steepest public spending cuts since WW2, increased VAT and cuts in benefits for the poorest are simply making our economy more vulnerable to the double dip that they increasingly fear.

Written by Nicola Smith

I’m Head of the Economic and Social Affairs Department at the TUC. I also represent the TUC on the Social Security Advisory Committee. My posts may therefore range from the environment to the welfare state via macro-economic policy but will ine…